Essentially, when speaking about compensation, one means, on the one hand, the reimbursement that employees receive for the kind of work that they do or the services that they offer for the organization. On the other hand, benefits are some additional areas of compensation that are besides the regular ones and are presented in some form which ultimately add to the returns that the employees receive for the work that is done. It is extremely critical to note here how the offering changes per work culture and organizational policies.

Compensation can be defined as the mixture of monetary and other social and personal benefits that are given to employees in place of their time, effort, and skill set that they possess. Compensation and benefits are mainly provided to employees so as to retain and grow the talented human capital and utilise their services to help the organization grow.

Types of Compensation and Benefits Plan

In essence, the types of compensation and benefits plan mean the compensation structure of a specific organization, and, hence, it is reasonable to keep to the two different types of compensation management in general: direct and indirect. The chosen organization to serve as an example is Procter & Gamble. In this regard, the compensation management is a field that provides a scenario with an ideal mix of the various types of remuneration methodologies.

Direct Compensation

The first one is the direct compensation that typically comprises the salary structure and other payments for some health related benefits. There are specific designated staff members in the Human Resource team, and they are in charge of fixing this compensation scales and grading employees so as to fix their pay band and range of salary. Monitoring and evaluation of the individuals who work in the organization to track their contribution at their respective levels and tie them against a specific compensation plan is what is the basic task of these compensation management staff. Estimating the time, effort, and benefits that an employee has provided or contributed to the well-being of an organization is an integral component of this structure. (Reynolds, 2006, pp. 134)

It is important to note here that compensation plans need to be regularly updated and compared with other similar organizations to ensure that the employees are in no way deprived of the basic industry standards that they might receive if they were working elsewhere. This process of compensation fixing is known as benchmarking, i.e. comparing with the best in the industry standards and setting of the plan for the own rewarding system of the organization.

Mostly, the great majority of the jobs across firms in an industry are comparable barring few that the firm needs to positions on its own, which are based on the contribution of that job role. This policy is known as fair compensation, as this is supposed to be in line with the industry average and the employee thereby is assured of being paid a standard for his service. All these things are imperative, as they prevent turnover that has been deemed to be a very costly affair from the point of view of time, effort, and money to recruit and train new staff and make them acquainted with their roles and responsibilities. (Zhao & Lovrich, 1997, pp. 513)

Indirect Compensation

It primarily pays attention to minute details, like what drives an individual to work or  what his/her basic motivating criteria is, and seeks to fulfil that need of the individual. Over decades, P & G has observed their employees and some patterns and attitudes in their behaviour. Besides salary, there are many other driving factors for employees to work in an organization. It has been seen that employees whose values and priorities are in line with that of the company’s tend to be much more productive than other employees. With this commonality, what happens is that the employees put in their best efforts and are highly motivated to work and perform better.

Some of the general types of indirect compensation comprise the free staff development courses, like training programs and additional learning based on attending seminars or workshops; facilities for their family and relatives, like a subsidized day care service, etc. Some of the employees who are very career-oriented tend to be influenced by some other indirect compensation measures like greater and better opportunities for being promoted to higher job roles/designations; transfers within the company on the basis of recognition of work, public recognition, applause and appraisal. In addition, this could be the capability to influence change in the area of work and societal service measures that the organization adopts so as to give its employees an opportunity to do something good.

Advantages of the Compensation and Benefits Plan

The advantages of these compensation and benefits plan include a fair measure of evaluation and grading of an employee’s contribution to the organization. Also, through this, there is less room for complexity or the possibility of vagueness in approach. This plan or scheme also makes sure to tie the motivational factors of work to an employee’s indirect benefits structure so that each employee becomes more productive and competent in his own sphere. (Li & Roloff, 2007, pp. 222)

There is a little flexibility and room for growth and incremental increase in salary structure every year, which is also revised after some years, considering the economic scenario, inflation rates, and prevailing purchasing power parity in the industry. Annual review and renewal of the plan ensures to take into account the considerable amount of above average work that the employee has done and, consequently, he can be rewarded for the same.

From the companies’ point of view, it actually helps them to determine all the costs that are encountered on an employee in a given period in the form of CTC or Cash to Company, which makes it easy for them while calculating the P&L A/c in the profitability statements of the company. A continued modification in this structure also ensured that the changing needs and aspirations of employees are taken into consideration so as to render them motivated and highly satisfied. (Datta, 2012, pp. 493)

Moreover, some firms that spend value amount of bandwidth in ensuring proper communication of entire compensation benefits to employees also have this advantage of receiving feedback from the employees while designing the type of the remuneration plan for each.

Disadvantages of the Compensation and Benefits Plan

Much of complexity and unnecessary wastage of time and effort occurs and requires the employment of specific resources to fulfil the tasks like data management, statistics, and report creation, which also require certain set of skills. In an effort to keep with the company’s vision, it is often seen that most of the creative packages do not reach the desirable aim. In addition, there is a tendency among employees to compare among themselves the salaries and if someone’s salary is higher (when he/she is acquired from a competitor), then it causes a sense of dissatisfaction. (Carraher, Gibson & Buckley, 2006, pp. 9)

Recommendations on How to Improve the Plan

On the basis of the given experience in the industry, one can say that these rules, regulations, and structure of payment will vary across organizations, since they are fixed by the Human Resource department of that organization. It is they who take care of various policy frame work and make modules for payment to employees through a uniform compensation and benefits plan. That is why it is necessary to draw parity between the different methodologies and make it more creative and dynamic in nature.

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